The U.S. video game industry chalked up almost$22b in retail sales last year and is continuing to grow steadily. In 2008, approximately 20.7m current generation consoles were sold (NPD data). That number may be relatively small compared to the install base for DVD players (estimated at about 87% of TV owning households in 2007 according to Nielsen), but life to date US sales of consoles as of December were above 81.6m units (including the PS2, 38.4m, without). No matter how you count it, that is a substantial market and a sizable number of households.

Blockbuster in its continuing struggles to reinvent and improve its business wants to reach the gaming market more efficiently than they currently do. To achieve that, the company announced Wednesday they’ll begin including games in their “Total Access” mail-order rental service.

The program, which is scheduled to roll out in the second quarter, will begin as an extremely limited pilot. Games will be offered for the Wii, PS2 and PS3, the Xbox and the Xbox 360.

Already, according to Blockbuster’s General Manager and VP Bob Barr, the company rents more games than any other company.

In the quarter ended in September, Blockbuster’s total rental revenue for games rented in the U.S. was $50.5m but the trend for the past year (shown in the chart) has been downward. (December 2008 results won’t be released until early March). . The revenue take is also tiny compared to 2008’s $10.96b in video game software sales. (For comparison, DVD rentals represented $7.5b compared to about $14.5b in sell-through in 2008 according to the Digital Entertainment Group).

The belief at Blockbuster, it seems, is online rentals will help reverse the trend in their own game rental revenue and help grab share in what has potential to be a substantially larger marketplace.

The packaged deal also creates the prospect of DVD and Game rentals from a single vendor, a concept Blockbuster hopes will present a unique value proposition capable of luring customers from rival services like Netflix (movies) or Gamefly (games); or alternatively, prevent customer defections in the opposite direction.

Blockbuster’s Parr made a point of saying this kind of offering is “not available through anyone other than Blockbuster.” The company will almost certainly emphasize that fact in its marketing if the service expands beyond the pilot.

It’s unclear but it appears the initial service will be offered only as part of a package with movie rentals and not as a stand-alone game rental option.
One difference with the game add-on:, customers exchanging a mail-order game for an in-store title will be charged a rental fee, though half of regular price. It won’t be a free inclusion in the package as is the case with Total Access mail-order movies.

Eyes will be watching to see how the experimental game rental pilot is received.

If it takes hold, which may not be known for some time, the game rental service might stimulate some calls for a Netflix/ Gamefly tieup. It’s a match that’s been suggested before though it’s unlikely Netflix will be interested.

The Los Gatos company had about $140m in cash on the books at the end of December (earnings news here), but Netflix is roaring ahead with focus set on building out its own digital platform. Moving into a complimentary, but non-core, business line like gaming-rentals would be a distraction they’re unlikely to take on. Moreover, if Netflix ever does want to expand to gaming it already has the distribution capabilities to handle that on its own. Acquiring a partner would be more about quick inventory and customer acquisition; valuable but only at the right price.